ITA No.1429/Kol/2013-M/s. Purvanchal Leasing Ltd. A.Y.2006-07 1 IN INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C , KOLKATA (Before Shri N. V. Vasudevan,J.M. & Shri M. Balaganesh, A.M.) ITA No. 1429/Kol/2013 : Asstt. Year : 2006-2007 DCIT,Central Circle-VIII, Vs M/s. Purvanchal leasing Kolkata. Ltd. 31, Shibtolla Street, PAN: AACCP9719J Kolkata (APPELLANT) (RESPONDENT) Assessee by : Shri A. K. Tulsiyan, FCA. Revenue by : Shri G. Mallikarjuna, CIT,DR Date of Hearing : 19.09.2016 Date of Pronouncement : 19.10.2016 ORDER Per Shri N. V. Vasudevan, J.M. This is appeal by Revenue against order dated 18/03/2013 passed by CIT(A)-Central-1,Kolkata relating to assessment year 2006-07. 2. assessee is company engaged in business of making investment in shares, mutual funds and debenture for past several years. For assessment year 2006-07, assessee filed return of income on 30.11.2006 disclosing total income of Rs.4,91,85,610/-. Assesee had declared short term capital gain purchase and sale of shares and mutual funds of Rs.5,57,30,140/-. order of assessment u/s.143(3) of Income-tax Act 1961(Act) was passed on 30/06/2008 in which short term capital gain declared by assessee was accepted by AO. ITA No.1429/Kol/2013-M/s. Purvanchal Leasing Ltd. A.Y.2006-07 2 3. CIT,Circle-1, Kolkata in exercise of his powers u/s.263 of Act passed order dated 04/03/2011, whereby CIT held that AO while concluding assessment u/s.143(3) of Act, did not properly examine question as to whether gain on purchase of sale of shares and security had to be assessed under head of Capital Gain or income from business . CIT, Circle-1 directed AO to make assessment afresh and consider question in light of CBDT Circular No.4 dated 15.06.2007. 4. It is pursuant to aforesaid order of CIT, Circle-1, Kolkata dated 04/03/2011 passed u/s.263 of Act that AO examined question as to whether short term gain declared by assessee has to be assessed under head of income from business. AO held that gain on sale of shares had to be under head Income from Business and in coming to above conclusion AO made following observations: A/R s argument that assessee company during relevant period had been engaged in investment in shares and not trading in shares is not acceptable. In order to determine whether securities were purchased for investment or for business purposes to get income in shortest possible period it has to be seen from frequency and number of transactions carried out by assessee during year. It is pertinent to note that assessee has carried out transactions on regular basis and most of time on daily basis which clearly goes to show that assessee was actively involved in purchase and sale of shares and there cannot be other motive than to earn profit in shortest possible period. There was no intention on part of assessee to make investment and earn dividend. Though assesee has shown share transaction as investment, treatment in books of assessee is not conclusive and if volume, frequency and regularity at which transactions are ITA No.1429/Kol/2013-M/s. Purvanchal Leasing Ltd. A.Y.2006-07 3 carried out indicate systematic and organized activity with profit motive then it becomes business profit not capital gain. From details of share transactions submitted by assessee, it is evident that assessee has carried out as many as 490 transactions of purchase and 646 transactions of sale during period relevant for assessment year under consideration. It is pertinent to note that none of script has been retained by assessee up to one year and most of securities which were purchased by assessee during year were sold within year . holding period of scripts in around 207. A/R s argument that assessee has been showing gain arises on share transactions as short term capital gain or long term capital gain for past several years and Department has accepted assessee s treatment of transactions is also not acceptable. principal of resjudicata is not strictly applied to Income Tax proceedings. Each case has to be decided on basis of its facts and circumstances. In this case assessee was doing huge number of transactions and none of securities were retained even for one year. frequency of purchase and sale and short duration of holding of shares clearly establish that activity of assessee was for trading in shares. A/R for asessee has relied upon several decisions of ITAT and Courts as mentioned above to support his contention that transactions of purchases and sales were not business activity. But facts of this case and those referred by A/R are not identical. Rather in similar facts and circumstances, Hon ble ITAT, Mumbai Bench in case of ACIT vs. Trupuraprasad N Pandya in ITA No.1336/Mum/2010 has held that when assessee is doing huge number of transactions and none of securities is retained even for one year then income derived by assesee from share transactions is business income. In view of above discussion, it is held that profit of Rs.5,57,30,140/- earned by assessee on sale and purchase of shares and mutual fund is business income of assessee and not short term capital gain. 5. Aggrieved by order of AO, assessee preferred appeal before CIT(A). Before CIT(A), Assessee contended that in past similar transactions were considered as giving raise short term capital gain in assessment of assessee. assessee also pointed out merely because there was large volume and frequency of transaction, it cannot automatically make nature ITA No.1429/Kol/2013-M/s. Purvanchal Leasing Ltd. A.Y.2006-07 4 of transaction as trading in shares. In this regard Assessee relied on decision of Hon ble ITAT (Mumbai) in case of Janak S. Rangawala 11 SOT 627. assessee also placed reliance on decision of Hon ble ITAT (Mumbai) in case of Gopal Purohit 122 TTJ 87 wherein it was held that in Income Tax assessment principle of consistency should be followed. Tribunal held that Revenue, if it accepts similar transaction as giving rise to short term capital gain, cannot take contrary view in assessment for subsequent assessment year on same set of facts. It was pointed out that Hon ble Mumbai High Court has also confirmed order of Tribunal as reported in 336 ITR 287. assessee also pointed out that for assessment year 2007-08 proceedings u/s. 263 of Act were initiated by CIT, Circle-1, Kolkata. In those proceedings assessee pointed out that profit on sale of shares were accepted by Revenue as giving raise to short term capital gain. CIT in assessment year 2007-08 accepted claim of assessee and dropped proceedings u/s.263 of Act for that year. 5. CIT after considering submissions of assessee held as follows: I have considered submissions of appellant and perused assessment order. I have also gone through judicial pronouncements on issue involved relied upon by appellant. It is observed that in original order passed u/s.143(3), AO had accepted that profit earned by appellant on sale of shares and mutual funds is taxable under head Capital Gain as declared in return of income. However, assessment on this point was set aside by CIT, Central-1, Kolkata for reason that AO had not examined this point ITA No.1429/Kol/2013-M/s. Purvanchal Leasing Ltd. A.Y.2006-07 5 from angle of its taxability under head business income . Consequently, AO passed impugned order u/s263/143(3) wherein he assessed profit on sale of share and mutual funds as business income instead of short term capital gain. Apparently, this decision was taken by AO only for reason that original order was set aside by CIT u/s.263. However, it is observed that in subsequent year i.e. in assessment year 2007-08 also, CIT, Central-1, Kolkata had initiated proceedings u/s.263 on this issue. order u/s.263 for assessment year 2007-08 was passed on 22.02.2012 wherein CIT accepted fact that profit earned by assesses on sale of investment shares is taxable under head Capital Gain and not business income. In that order CIT observed as under: issue whether short term capital gain shown by assessee was assessable under business head or not is covered by decision of jurisdictional High Court in case of Himalaya finance & Investment Co. in ITA No. 260 of 2008, G. A. No. 1271 of 2008. aforesaid decision of jurisdictional High Court is squarely applicable in instant case. Hence, proposal to revise assessment order on aforesaid issue is also dropped. facts and issue involved in year under appeal are identical to those in assessment year 2007-08; and consequently, in year under appeal, short term capital gain cannot be assessed as business income. Moreover, on perusal of Balance Sheet of year under appeal, preceding years and subsequent years, it is observed that appellant company had regularly made investments in shares and mutual funds which was accordingly reflected in balance sheet under head Investments . There was no stock in trade of shares and there is no evidence that appellant had converted its investment into stock in trade. In all preceding and subsequent years, appellant had declared income under head capital gain depending on period of holding. capital gain so declared by appellant was accepted by AO in assessment orders passed by him. In year under appeal, there is no change in facts, and therefore, AO cannot take different view unless he proves that facts had been changed. Merely for reason that there were several transactions of purchase and sale of shares, income under head capital gain cannot be assessed as business income. various judicial decisions relied upon by appellant including that of Hon ble Supreme Court in case of Gopal Purohit(Supra) support its case that prift arising from sale of investment shares is taxable under head Capital Gain and not business income. Moreover, jurisdictional CIT has also accepted same view following decision of Hon ble Calcutta High Court in case of Himalaya Finance & Investment Company (Supra). In view of above, it is held that AO was not justified in assessing short term capital gain shown by appellant as its business income. AO is directed to assess same as short term capital gain. Ground No.1 is allowed. ITA No.1429/Kol/2013-M/s. Purvanchal Leasing Ltd. A.Y.2006-07 6 6. Agrieved by order of CIT(A), revenue has preferred present appeal before Tribunal. 7. We have heard submissions of Ld. DR and Ld. Counsel for assessee. Ld. DR relied on order of AO. Ld. Counsel for assessee reiterated submissions that were made before CIT. 8. We have given very careful consideration to rival submissions. We have considered rival submissions. issue to be decided is as to whether STCG on transaction of purchase and sale of units of mutual funds and shares undertaken by assessee during previous year is to be assessed under head income from business as claimed by revenue or income under head capital gain as contended by assessee. Before we deal with facts of case of assessee, we will briefly narrate principles applicable in deciding above issue as laid down in several judicial pronouncement:- (a) Whether transaction of sale and purchase of shares were trading transactions or whether they were in nature of investments is mixed question of law and fact. CIT Vs. Holck Larsen, 60 ITR 67 (SC). (b) It is possible for assessee to be both investor as well as dealer in shares. Whether particular holding is by way of investment or formed part of stock in trade is matter which is within knowledge of assessee and it is for assessee to produce evidence from his records as to whether he maintained any distinction between shares which were hold by him as investments and those hold as stock in trade. (CIT Vs. Associated Industrial Development co. Ltd., 82 ITR 586 (SC). (c) Treatment in books by assessee will not be conclusive. If volume, frequency and regularity with which transactions are carried out indicate systematic and organized activity with profit motive, then it would be case of business profits and not capital gain. CIT Vs. Motilal Hirabhai Spg. And Wvg. Co. Ltd., 113 ITR 173 (Guj); Raja Bahadur Viswshwara Singh Vs. CIT, 41 ITR 685 (SC). ITA No.1429/Kol/2013-M/s. Purvanchal Leasing Ltd. A.Y.2006-07 7 (d) Purchase without intention to resell where they are sold under changed circumstances would be capital gains. CIT Vs. PKN, 60 ITR 65 (SC). Purchase with intention to resell would render gain profit on sale business profit depending on circumstances of case like nature and quantity of article purchased, nature of operation involved. Saroj Kumar Mazumdar Vs. CIT, 37 ITR 242 (SC). (e) No single fact has any decisive significance and question must depend upon collective effect of all relevant materials brought on record. Janki Ram Bahadur Ram Vs. CIT, 57 ITR 21 (SC). 9. above tests have again been reiterated by CBDT in its Instruction No.1827 dated 31.8.1989 referred to by AO in order of assessment and Circular No.4 of 2007 dated 15 June 2007. CBDT has recently issued Circular No.6/2016 dated 29.2.2016 clarifying on taxability on income earned from sale of shares and other securities and whether to treat it as capital gains or business income. circular gives choice to assessee to define income earned from share or securities sale as capital gains or business income. treatment in books of accounts by Assessee of shares/units sold in its books of accounts as investments would be very important factor to be considered and should be sufficient to hold that shares/units held as investments cannot be treated as giving raise to income from business. 10. Keeping in mind, above broad principles, we shall now examine case of assessee. It is not in dispute that shares and mutual funds that were sold during previous year, which resulted in income in question, were held by Assessee as Investments and not as Stock-in-trade . assessee during previous year had entered into 490 transactions of purchase and 646 transactions of sale of shares, units of ITA No.1429/Kol/2013-M/s. Purvanchal Leasing Ltd. A.Y.2006-07 8 mutual funds. Out of above in respect of 207 transactions sale was made within 30 days of purchase. question is as to whether volume and frequency can for basis for drawing inference that Assessee was engaged in business. Hon ble ITAT Mumbai Bench in case of Janak S.Rangwala Vs. ACIT 11 SOT 627 (mum) has held that magnitude of transaction does not alter nature of transaction. As we have already seen it is not in dispute that Assessee had treated shares and units as investments in its books of accounts. Similar transactions have been accepted by revenue in assessments for AY 2005-06 as giving raise to capital gains and not as business income in assessment completed u/s.143(3) of Act after scrutiny. There was no borrowing by Assessee out of which investment in shares and units were made. 11. In assessment year 2007-08 also, CIT, Central-1, Kolkata had initiated proceedings u/s.263 on this issue. order u/s.263 for assessment year 2007- 08 was passed on 22.02.2012 wherein CIT accepted fact that profit earned by assesses on sale of investment shares is taxable under head Capital Gain and not business income. CIT in said order expressed view that facts of Assessee s case were similar to case decided by Hon ble Kolkata ITAT in case of M/S.Himalaya Finance & Investment Co.Ltd. ITA No.1708/Kol/2007 order dated 17.8.2007. decision of Hon ble ITAT in case of M/S.Himalaya Finance & Investment Co. Ltd. (supra) has been approved by Hon ble Kolkata High Court in ITA No.260 of 2008 order dated 6.8.2008. In light of above circumstances prevailing in case of assessee, we are of view that conclusion of CIT(A) that income from sale of shares and units declared by assessee as capital gain has to be accepted is correct and calls for no interference. ITA No.1429/Kol/2013-M/s. Purvanchal Leasing Ltd. A.Y.2006-07 9 12. In CIT Vs. Gopal Purohit 228 CTR 582 (Bom), question of law raised was regarding whether STCG declared by Assessee was to be assessed as business income or not. Question (b) considered by Hon ble Bombay High Court was as follows: (b) Whether, on facts and circumstances of case and in law, Hon ble ITAT was justified inholding that principle of consistency must be appliedhere as authorities did not treat assessee as share trader in preceding year, in spite of existence of similar transaction, which cannot in any way operate as resjudicata to preclude authorities from holding such transactions as business activities in current year? Hon ble Bombay High Court held as follows: 3. In so far as Question (b) is concerned, Tribunal has observed in paragraph 8.1 of its judgment that assessee has followed consistent practice in regard to nature of activities, manner of keeping records and presentation of shares as investment at end of year, in all years. revenue submitted that different view should be taken for year under consideration, since principle of res judicata is not applicable to assessment proceedings. Tribunal correctly accepted position, that principle of res judicata is not attracted since each assessment year is separate in itself. Tribunal held that there ought to be uniformity in treatment and consistency when facts and circumstances are identical, particularly in case of assessee. This approach of Tribunal cannot be faulted. revenue did not furnish any justification for adopting divergent approach for Assessment Year in question. Question (b), therefore, does not also raise any substantial question. 14. above decision of Hon ble Bombay High Court is clearly applicable in this case. As we have already seen that AO in AY 05-06 accepted similar income as capital gain. Even for AY 2006-07 AO accepted claim of Assessee and it was only pursuant to order u/s.263 of Act, AO took different view. It is not disputed by revenue that facts and circumstances in AY 05-06 and present AY 2006-07 are identical. Though rule of res judicata is not applicable in income tax ITA No.1429/Kol/2013-M/s. Purvanchal Leasing Ltd. A.Y.2006-07 10 proceedings but principle of consistency will definitely apply and on that basis claim of Assessee should be held to be proper. 15. For reasons given above, we confirm order of CIT(A) and dismiss appeal by revenue. 16. In result, appeal by revenue is dismissed. Order Pronounced in Open Court on 19.10.2016 Sd/- Sd/- (M. Balaganesh) (N. V. Vasudevan) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 19 /10/2016 S. Sinha(PS) Copy of order forwarded to: 1. M/s. Purvanchal Leasing Ltd., 31, Shibtolla Street, Kolkata-700007. 2 D.C.I.T., Central Circle-VIII, Kolkata 3. CIT-Central-I, 4. CIT(A)-Central-I, 5. DR, Kolkata Benches, Kolkata True Copy, By order, Asst. Registrar, ITAT, Kolkata Benches DCIT, Central Circle-VIII, Kolkata v. M/s. Purvanchal leasing Ltd